MoD 'was an innocent at a table of card sharps' during sale of defence firm, say MPs

The taxpayer lost out on more than £90million when ministers part-privatised Qinetiq, claims the Commons' Public Accounts Committee.

MPs accuse ten top managers at the firm of 'profiteering' from the sell-off in 2003.

Sir John Chisholm: £130,000 investment rose to £26million when Qinetiq was part-privatised

The directors made a profit worth 200 times their investment when Qinetiq  -  which carries out research and advises the MoD on which equipment to buy  -  was sold off at a knock-down price.

Edward Leigh, the committee's chairman, said there were serious questions over whether the research company could continue to offer the Ministry of Defence impartial advice on which equipment to purchase.

He said: 'The privatisation of Qinetiq has been successful in protectingthe viability of this business of strategic importance to UK defence interests.

'But the MoD conducted the deal like an innocent at a table of card sharps, with the taxpayer the fall guy, losing out on nearly £100million.'

Committee chairman Edward Leigh

Qinetiq was formerly the state-owned Defence Evaluation and Research Agency.

The MoD underestimated how much the company was worth, MPs say in their report.

This enabled U.S. private equity firm Carlyle to negotiate a reduction in its offer for a minority stake in the company after being appointed preferred bidder.

Senior officials in DERA made fortunes when Qinetiq was sold off, including chairman Sir John Chisholm.

His £130,000 investment rose to £26million when the firm was floated in 2006.

Chief executive officer Graham Love's initial stake of £108,000 rose to £21million, while group commercial director Hal Kruth, who bought £70,000 of shares, saw his investment rise to £14million.

The ten most senior managers earned £200 for every £1 invested compared to £9 for the taxpayer.

Mr Leigh said: 'The senior public servants managing Qinetiq behaved dishonourably.

'They sold the idea to the MoD of privatising the business without explaining they stood to benefit  -  a serious conflict of interest  -  and later negotiated their own incentive-scheme with Carlyle before that firm was appointed preferred bidder.

'This is nothing less than profiteering at the expense of the taxpayer. Never again should public servants be permitted to pursue such a self-interested stratagem.

'Their behaviour does not fill me with confidence that Qinetiq can be relied upon to advise the MoD on what military equipment to buy, if Qinetiq is increasingly in the game of supplying that equipment.'

Liberal Democrat Treasury spokesman Vince Cable said: 'The upshot of the Government's bungled privatisation of Qinetiq was a bonanza for the Carlyle group and the senior civil servants involved, but a loss of millions for the taxpayer.'

Junior defence minister Baroness Taylor said the £90million figure was 'pure speculation'.

She said: 'The Ministry of Defence was backed by a range of experienced specialist advisors during the sale process, including a leading merchant bank.'

Sir John Chisholm, chairman of Qinetiq, said: 'I consider the creation of Qinetiq to be the greatest achievement of my working life and I am proud of a business that has been transformed into a highly successful international company worth over a billion pounds.

' I categorically refute any suggestions that I have acted dishonourably in any way and I think that allegation is grossly unfair.'